The European Monetary Union (EMU)
Nature at its best- Beautiful winter
The European Single Currency
By: Oluwaseun P. Adeola ( IT Tralee, Ireland)
This article is aimed at discussing basically the benefits of The European Single Currency.
I will provide a brief overview of EMU From its inception to the impact the euro has had for the conduct of business and on the European citizens.
From the rubbles of the Second World War, the founding fathers of European integration came to believe that binding EU nations together was inevitable if lasting peace was to be achieved. The dynamic strategy that emerged was to pursue common economic projects and build institutions to carry them out.
In the attempt to realizing these goals, the founding member states admitted that a single market in Europe was necessary. Achieving that would lead to a series of treaties and the adoption of far reaching legislation. With the passage of time, the coming together of countries in Europe as a community was transformed from a dream into a reality- the European Union was born, the laudable goal of common market within the EU, where goods and services, capital and of course, people would move freely was achieved.
But the job was not complete with the attainment of a single market. Member states realized and agreed that to reap the maximum benefits accruing from a common market within EU, a single financial and transactional means of exchange would be inevitable.
Consequently, the European council in 1979 adopted the European monetary system (EMS) which took on board what is called an exchange rate mechanism (ERM) this was done to ensure that participating member states keep the zig- zag movements of their national currency exchange rates within a reasonably agreed limit.
Exactly nine years after (1988), the then president of the European Commission Jacques Delors, chaired a committee which proposed a three stage plan to reach full economic and monetary union. The proposition of the committee included the establishment of European Central Bank and a single currency which would replace any existing national currencies.
The Maastricht Treaty orchestrated the birth and the introduction of the euro. The treaty established five convergence criteria which each member who wished to participate must meet by 1998. Only eleven members were able to meet the convergence criteria and on January 1st, 1999 national currencies were permanently fixed while the euro was introduced officially. But it was not physically introduced until January 1st 2002 and six months later, the national currencies of EMU member states became illegal tenders.
The creation of EMU necessitated by the Maastricht Treaty drastically transformed the business environment in that it serves as important incentives for inward investment. It also has since become an inspiration to other regional blocs of the world. An example is the current single currency negotiation in some part of the Arab world.
The benefits of the single currency in Europe are enormous and we all are testimonies to that fact. Therefore, I shall discuss the benefits of EMU under the following three headings. They are:
1. Impact of single currency on business
2. Impact of single currency on travellers and tourists and,
3. The consumers/ European populace.
However, I would not go forward analysing the various impacts of single currency with the pretence that there are no critics out there who vehemently express fears and cynicism about what the architects of European integration, world foremost economists and vast majority of European citizens believe is the only way forward in realising relative peace, political stability and economic prosperity- The essence of European union.
The truth is that small countries like Ireland enjoys real sovereignty better when it joined the EMU because EMU represents all the member states as one and that gives each member state a stronger voice concerning monetary and economic issues around the world
Baltic States interest and eagerness in joining the EMU is a testimony that the single currency is a success that transcends national sovereignty sentiments. It should be noted that the enormous benefits of single currency cannot be matched with the seemingly ills critics are trumpeting. My opponents should understand that no institutions of this magnitude, can be perfect
I will now discuss why I believe that there cannot be a well functioning EU without EMU (economic and monetary union).
First is the impact on business. The conversion to European single currency has made doing business more efficient in terms of cost reduction, time management and price transparency.
Cost: With the introduction of Euro, companies do not need to pay hedge costs anymore. For instance, UK firms currently spend about £1.5 billion a year buying and selling foreign currencies to do business in the EU.
With the EMU this is eliminated, so decreasing cost and, in turn, increase profitability of EU firms.
Price Transparency and uncertainty eliminated: before the introduction euro, it was difficult for businesses to accurately compare the prices of goods, services and resources across the EU because of the fluctuating exchange rate. And that adversely affects trade. But now, businesses within EMU can conveniently and confidently trade without any fears because it’s a universal currency.
Time management: the precious timed use in analysing and ascertaining the accurate exchange rate and timing to trade can now be used in something more lofty and that brings about more productivity.
The stability within the EMU member state has been able to lure in foreign investors. As you would agree, more investments mean more jobs and more jobs result in economic growth and prosperity.
Tourists and travellers
My second point is how the single currency affects travellers and tourist. That directly affects us all. The single currency has made life a lot easier travelling within the Euro As tourist or travellers, there is no more need to change money when travelling within the euro zone, and there is now less red tapes when transferring large sums of money across borders. We are living proof to this, we no longer need to change currencies and bank charges. For example, as a result of the euro, one can smoothly make a large purchase across a European border such as buying a holiday home or a piece of furniture.
On a general note, European consumers do immensely benefits from the adoption of a single currency. When cost of production is reduced, the spill over effect on consumers is ostensibly lower prices. Consumers can easily compare prices across borders and find the most advantageous price for a product or service – especially in the internet era – whether it is a pair of shoes or electronic systems. This is because increased price transparency has the effect of increasing competition in businesses. That keeps downward pressure on prices in the euro area. A good example is where people living in French towns bordering Germany could walk into Germany to make cheaper groceries shopping.
The euro has brought inflation down to a low and stable level. Three to four decades ago, many EU countries had very high inflation rates, some of which were 20% and more. Inflation fell as preparation for the euro began and, it has since its introduction remained around 2% in the euro area. Price stability means that purchasing power of the citizens and the values of their savings are better protected, which helps make the future more certain. (European commission: economic and financial affairs)
Having highlighted and presented the concrete evidences that reveal that a European union without EMU is a body that is far from making a good sense of the common market the dreams of its founding fathers. Without doubts, I believe most people here today would have to agree with me that there cannot be a functioning EU without the EMU. it doesn’t matter which part of the divide you belong, the simple truth is that the architects of European integration desired a continent of peace, economic prosperity and political harmony and, they couldn’t find a better way than to ensure that a single market operates in Europe. Now, can someone tell me a better way of operating and conducting trade and transactions in a single market if not with a SINGLE CURRENCY. Finally, I will conclude by saying that what a single market needs to operate effectively is a single currency and I strongly believe that single currency in a single market seems to be the way forward.
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